Why you shouldn’t trust the latest ‘record’ housing price index reading for September

Hong Kong’s official home price index hit a record high for the sixth consecutive month in September, although analysts said it was likely a rear-view indicator given the recent downturn in the sector.

The Rating and Valuation Department’s monthly supplement, released Thursday, showed the general price index for private homes climbed 0.22 per cent on month to a record 305.9. Since the start of the year the index is up 9.9 per cent.

The rental index rose to a 19-month high, increasing 0.28 per cent in September on month to 177. Since the start of the year the rental index has risen 6.5 per cent.

Analysts said the latest data likely failed to capture the softening in conditions that was just beginning to turn up in the official statistics.

“Due to the time lag between purchase and registration, the data reflects the market in August,” said Derek Chan, head of research at Ricacorp Properties.

Chan expected the department would report a decline in home prices when it announced the monthly supplement next month.

According to transaction data of 50 housing estates complied by Ricacorp, home prices began easing in September at a modest rate.

While overall price indices were up, average prices of small flats in size of 430 sq ft or below in Kowloon and New Territories fell 3.6 per cent and 4.1 per cent, respectively in September, according to the government data.

An increasing number of investment banks predict Hong Kong home prices to see a correction starting next year, with some expecting a 30 per cent slump by 2017.

Chan of Ricacorp forecast home prices will drop, but the fall will be less than 30 per cent from their highs.

“There are only about 10 per cent of flat owners substantially cutting asking prices,” Chan said.

Many flat owners are confident and refuse to sell, reflecting the subdued activity in the secondary market, he said.

The Transport and Housing Bureau early this week said that a record 86,000 flats are slated to be completed through 2019.

The inventory of unsold new apartments climbed to 7,176, a 15-month high in the September-ended, according to Centaline.

October data also points to a deepening slowdown. Residential sales for the month eased to 3,300, down 22.6 per cent from September’s turnover of 4,263.

On Wednesday, the government withdrew a tender of a residential site, the first time its had to do so in 19 months, as the nine bids submitted for the Tsing Yi site came in below the reserve price.

The news triggered some flat owners in the district to cut asking prices by as much as 30 per cent, according to agents.

According to investment bank Barclays, home prices are now down 2.7 per cent compared to their mid-September peak.